Economic instruments for natural resource efficiency: The role of carbon taxation and fiscal policy

Abstract

The research attempts to examine various connections between carbon taxation, economic development, policy framework (i.e., Fiscal and Monetary Policies), natural resources utilization and carbon emissions in the context of Chinese economy from 1980 to 2022. The study seeks correspondence relationships fiscal policies, monetary policy, and carbon dioxide emissions. This research addresses estimation and spurious regression issues with the application of cutting-edge nonlinear bootstrapping tools for testing purposes. The analysis reveals long-term integrated relationships between the variables considered and carbon emissions. In fact, it is very relevant to say that both sets of economic policies (monetary and fiscal) do have a positive impact upon carbon emissions. The application of nonlinear causality indicated environmental anxieties, as the findings from this test reveal a unidirectional causality lacking any reciprocal influences between consumption, economic productivity and resource utilization, and carbon emissions. Basically, energy policy is governed under the umbrella of fiscal policies. Similarly, the results also endorse by highlighting a one-sided effect of fiscal policies, thus accelerating environmental deterioration. These results confirm the destruction caused to the environment by economic policies, and a sense of real urgency for significant policy reforms.